This paper puts the original Reinhart-Rogoff dataset, made public by Herndon et al. (2013), to a formal
econometric test to pin down debt thresholds endogenously. We show that the nonlinear relation from debt to growth
is not very robust. Taken with a pinch of salt, our results suggest, however, that a negative association between debt
and growth may set in at debt levels as low as 20% of GDP. Further (and greater) thresholds may exist but their
magnitude is highly uncertain. For general government debt (1960-2009), the threshold beyond which this negative
relation kicks in is considerably higher at about 50%. Finally, individual country estimates reveal a large amount of
cross-country heterogeneity. For some countries including the United States, a nonlinear negative link can be detected
at about 30% of GDP. For others, the thresholds are surrounded by a great amount of uncertainty or no nonlinearities
can be established. This instability may be a result of threshold effects changing over time within countries and
depending on economic conditions, not captured in our estimations. Overall, our results can be seen as a formal
econometric confirmation that the 90% public debt threshold is not in the Reinhart-Rogoff data. But our results also
seem to suggest that public debt be associated with poor economic performance at fairly moderate public debt levels.
If high debt results in low growth, an issue of causality that is not systematically examined in this paper, then this
suggests rather low debt-GDP ratios would be appropriate. Furthermore, the absence of threshold effects or low
estimated thresholds may not preclude the emergence of further threshold effects, especially as public debt levels are
rising to unprecedentedly high levels.
The 90% Public Debt Threshold
The Rise and Fall of a Stylised Fact
Working paper
OECD Economics Department Working Papers
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